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TotalEnergies (TTE) to Sell Canadian Oil Sands Assets for $4.1B

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TotalEnergies’ (TTE - Free Report) unit, TotalEnergies EP Canada Ltd., announced that it has entered into an agreement to sell 50% of its interest in the Surmont oil sands asset and associated midstream commitments to ConocoPhillips for $3 billion (C$4.03 billion). TTE is also entitled to receive a contingent payment of $330 million (C$440 million).

In another deal, TotalEnergies announced that it will sell its entire shares of TotalEnergies EP Canada Ltd., comprising holdings in the Fort Hills oil sands asset and associated midstream commitments. TTE will receive $1.1 billion (C$1.47 billion) and this deal is expected to close before the end of 2023.

Rationale Behind the Deal

TotalEnergies is quite active in making acquisitions and divestitures of assets to make its portfolio stronger. TTE divests assets that are not in sync with its long-term objectives. The disposal of its Canadian oil sands assets is in sync with its strategy and the company will focus on allocating more capital to Oil & Gas assets with low breakeven.

TTE will utilize a portion of the proceeds to fund a $1.5 billion buyback in 2023, as announced on Investor Day on Sep 27, 2023, which will increase the value of TTE’s shareholders.

Long-Term Goal

TotalEnergies plans to expand its power generation to more than 100 TWh by 2030, investing $4 billion per year and increasing cash flow from $2 billion in 2023 to more than $4 billion by 2028, becoming net cash-flow positive.

This multi-energy company is gradually building a portfolio of low-carbon businesses that could account for 15-20% of sales by 2040. TTE is making strategic acquisitions to expand its renewable operations.

TotalEnergies aims to achieve net-zero emissions by 2050 and have a gross renewable power generation installed capacity of 19 gigawatts (GWs) as of July 2023. The company plans to expand its business to reach 35 GWs of gross production capacity from renewable sources and storage by 2025 and 100 GWs by 2030.

Renewable Energy Can Reduce Emissions

Cutting down emissions across industries is a primary concern for advanced nations across the globe. Nations are providing incentives to increase the usage of renewable sources of energy to produce electricity and reduce the usage of polluting sources like coal in electricity generation.

The scope in the renewable energy space is massive and the ongoing transition in the energy space is evident, with utilities shutting down old coal units and focusing on renewable and other clean sources to generate electricity.

Given this backdrop and the large growth opportunity, oil and gas companies are also investing in the renewable energy business. Oil and gas companies like ExxonMobil Corporation (XOM - Free Report) , BP plc (BP - Free Report) and Chevron Corporation (CVX - Free Report) , among others, are adopting measures to reduce emissions from operations.

To meet the growing demand for clean fuels, ExxonMobil has been working to reduce emissions by developing more efficient fuels. The company intends to invest billions of dollars in emission-reduction projects over the next few years. XOM has developed an ambitious roadmap to achieve net-zero Scope 1 and net-zero Scope 2 GHG emissions by 2030 for unconventionally operated assets.

BP has established an ambitious energy transition strategy to take advantage of the growing demand for sustainable energy. The company plans to reduce operational emissions by 30-35% by 2030.

CVX is making efforts to lower methane emissions. The company has adopted an upstream methane-intensity target of 2.0 kg CO2e/boe by 2028, representing a 57% reduction from its 2016 baseline. It has reduced methane intensity by more than 50% and is actively working to end routine flaring by 2030.

The long-term (three- to five-year) earnings growth of ExxonMobil, BP and CVX are currently pinned at 25.91%, 6.5% and 14.27%, respectively.

Price Performance

In the past three months, shares of TotalEnergies have risen 12.6% compared with the industry’s 11.5% growth.

 

Zacks Investment Research
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Zacks Rank

TotalEnergies currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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